The biochemical mechanism by which chloramphenicol causes aplastic anemia was investigated using various in vivo and in vitro techniques. Chloramphenicol was shown to be activated by enzyme systems present in the liver microsomes and bone marrow cells to reactive intermediates that combine covalently with tissue macromolecules. The biochemical process appears to be hydroxylation of the dichloroacetamide group in chloramphenicol resulting in the formation of an alkylating agent. Replacement of the two chlorines with hydrogen or fluorine completely prevents this activation. Moreover isolation identification of a new metabolite of chloramphenicol, namely oxamic acid of chloramphenicol, indicates that the activation is at the dichloroacetamide part of the molecule.